WSFS FINANCIAL CORP - FORM 10-Q

Attached files

file	filename
EX-32 - EXHIBIT 32 - WSFS FINANCIAL CORP	ex_32.htm
EX-31.1 - EXHIBIT 31.1 - WSFS FINANCIAL CORP	ex_31-1.htm
EX-31.2 - EXHIBIT 31.2 - WSFS FINANCIAL CORP	ex_31-2.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q
(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
	EXCHANGE ACT OF 1934

For the quarterly period ended		March 31, 2011

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
	EXCHANGE ACT OF 1934

For the transition period from			to


Commission File Number 0-16668


WSFS FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)

Delaware					22-2866913
(State or other jurisdiction of					(I.R.S. Employer
Incorporation or organization)					Identification Number)

500 Delaware Avenue, Wilmington, Delaware					19801
(Address of principal executive offices)					(Zip Code)

(302) 792-6000
Registrant’s telephone number, including area code:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files), ____ Yes_____ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer x Non-accelerated filer o Smaller reporting company o (Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of May 3, 2011:

Common Stock, par value $.01 per share				8,596,821
(Title of Class)				(Shares Outstanding)

WSFS FINANCIAL CORPORATION

FORM 10-Q

INDEX

PART I. Financial Information

			Page
Item 1.	Financial Statements (Unaudited)

	Consolidated Statements of Operations for the Three Months
	Ended March 31, 2011 and 2010		3

	Consolidated Statements of Condition as of March 31, 2011
	and December 31, 2010		4

	Consolidated Statements of Cash Flows for the Three Months Ended
	March 31, 2011 and 2010		5

	Notes to the Consolidated Financial Statements for the Three
	Months Ended March 31, 2011 and 2010		6

Item 2.	Management’s Discussion and Analysis of Financial Condition		28
	and Results of Operations

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		40

Item 4.	Controls and Procedures		40


PART II. Other Information

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

Item 3.	Defaults upon Senior Securities	40

Item 4.	[Reserved]	40

Item 5.	Other Information	40

Item 6.	Exhibits	40

Signatures		41

Exhibit 31.1	Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2	Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

	Three months ended March 31,
	2011		2010
	(Unaudited)
	(In Thousands)
Interest income:
Interest and fees on loans	$	31,956	$	31,223
Interest on mortgage-backed securities		7,026		9,032
Interest and dividends on investment securities		170		303
		39,152		40,558
Interest expense:
Interest on deposits		5,223		6,294
Interest on Federal Home Loan Bank advances		2,727		3,977
Interest on trust preferred borrowings		336		329
Interest on other borrowings		612		615
		8,898		11,215

Net interest income		30,254		29,343
Provision for loan losses		5,908		11,410
Net interest income after provision for loan losses		24,346		17,933

Noninterest income:
Credit/debit card and ATM income		4,740		4,370
Deposit service charges		3,564		3,879
Fiduciary and investment management income		2,827		1,065
Loan fee income		685		680
Mortgage banking activities, net		547		252
Bank owned life insurance income		179		196
Security gains, net		415		-
Other income		682		699
		13,639		11,141
Noninterest expenses:
Salaries, benefits and other compensation		14,816		11,986
Occupancy expense		2,838		2,562
Loan workout and OREO expenses		2,483		1,097
FDIC expenses		1,764		1,643
Equipment expense		1,614		1,469
Data processing and operations expenses		1,417		1,286
Professional Fees		1,123		1,018
Marketing Expense		951		704
Acquisition integration costs		334		-
Non-routine ATM loss		-		4,491
Other operating expense		4,047		3,377
		31,387		29,633

Income (loss) before taxes		6,598		(559	)
Income tax provision (benefit)		2,392		(1,073	)
Net income		4,206		514
Dividends on preferred stock and accretion of discount		692		692
Net income (loss) allocable to common stockholders	$	3,514	$	(178	)

Earnings (loss) per share:
Basic	$	0.41	$	(0.03	)
Diluted	$	0.40	$	(0.03	)

The accompanying notes are an integral part of these consolidated Financial Statements.

WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
	March 31,				December 31,
	2011				2010
	(Unaudited)
	(In Thousands except for Per Share Data)
Assets:
Cash and due from banks		$	65,215		$	49,932
Cash in non-owned ATMs			328,837			326,573
Federal funds sold			-			-
Interest-bearing deposits in other banks			221			254
Total cash and cash equivalents			394,273			376,759
Investment securities held-to-maturity			216			219
Investment securities available-for-sale including reverse mortgages			38,378			52,232
Mortgage-backed securities available-for-sale			683,619			700,926
Mortgages-backed securities trading			12,432			12,432
Loans held-for-sale			2,056			14,522
Loans, net of allowance for loan losses of $56,000 at March 31, 2011
and $60,339 at December 31, 2010			2,590,071			2,561,368
Bank owned life insurance			64,422			64,243
Stock in Federal Home Loan Bank of Pittsburgh, at cost			35,659			37,536
Assets acquired through foreclosure			8,311			9,024
Premises and equipment			32,310			31,870
Goodwill			26,777			26,745
Intangible assets			7,012			7,307
Accrued interest receivable and other assets			56,015			58,335

Total assets		$	3,951,551		$	3,953,518

Liabilities and Stockholders’ Equity

Liabilities:
Deposits:
Noninterest-bearing demand		$	505,154		$	468,098
Interest-bearing demand			322,749			312,546
Money market			684,996			743,808
Savings			366,790			255,340
Time			471,419			484,864
Jumbo certificates of deposit – customer			304,991			297,112
Total customer deposits			2,656,099			2,561,768
Brokered deposits			164,267			249,006
Total deposits			2,820,366			2,810,774

Federal funds purchased and securities sold under agreements to repurchase			100,000			100,000
Federal Home Loan Bank advances			498,165			488,959
Trust preferred borrowings			67,011			67,011
Other borrowed funds			68,427			91,636
Accrued interest payable and other liabilities			26,665			27,316
Total liabilities			3,580,634			3,585,696

Stockholders’ Equity:
Serial preferred stock $.01 par value, 7,500,000 shares authorized; issued 52,625 at			1			1
March 31,2011 and December 31,2010
Common stock $.01 par value, 20,000,000 shares authorized; issued
18,175,313 at March 31,2011 and 18,105,788 at December 31,2010			182			180
Capital in excess of par value			217,089			216,316
Accumulated other comprehensive income			6,354			6,524
Retained earnings			395,571			393,081
Treasury stock at cost, 9,580,569 shares at March 31,2011 and December 31,2010			(248,280	)		(248,280	)
Total stockholders’ equity			370,917			367,822
Total liabilities, minority interest and stockholders’ equity		$	3,951,551		$	3,953,518

The accompanying notes are an integral part of these Financial Statements.

WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three months ended
	March 31,
	2011			2010
	(Unaudited)
	(In Thousands)
Operating activities:
Net Income	$	4,206		$	514
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		5,908			11,410
Depreciation, accretion and amortization		2,349			1,384
Decrease (increase) in accrued interest receivable and other assets		2,485			(4,693	)
Non-routine ATM loss		-			4,491
Origination of loans held-for-sale		(27,761	)		(14,814	)
Proceeds from sales of loans held-for-sale		40,817			18,162
Gain on mortgage banking activity		(547	)		(252	)
Gain on sale of investments, net		(415	)		-
Stock-based compensation expense, net of tax benefit recognized		306			204
Excess tax benefits from share-based payment arrangements		(55	)		(79	)
Decrease in accrued interest payable and other liabilities		(534	)		(292	)
Loss on sale of assets acquired through foreclosure and valuation adjustments		2,100			226
Increase in value of bank-owned life insurance		(179	)		(196	)
Decrease (increase) in capitalized interest, net		44			(13	)
Net cash provided by operating activities		28,724			16,052

Investing activities:
Maturities and calls of investment securities		7,557			500
Sale of investment securities available for sale		6,124			-
Sales of mortgage-backed securities available-for sale		39,992			-
Repayments of mortgage-backed securities available-for-sale		49,817			46,372
Purchases of mortgage-backed securities available-for-sale		(72,789	)		(116,297	)
Disbursements for reverse mortgages		(43	)		(49	)
Net increase in loans		(38,481	)		(3,919	)
Net decrease in stock of Federal Home Loan Bank of Pittsburgh		1,877			-
Sales of assets acquired through foreclosure, net		2,253			1,627
Investment in premises and equipment, net		(1,884	)		(1,184	)
Net cash used for investing activities		(5,577	)		(72,950	)

Financing activities:
Net increase in demand and saving deposits		76,688			69,603
Net (decrease) increase in time deposits		(5,567	)		5,355
Decrease in brokered deposits		(84,764	)		(18,066	)
Proceeds from federal funds purchased and securities sold under agreement to repurchase		4,500,000			4,435,000
Repayments of federal funds purchased and securities sold under agreement to repurchase		(4,500,000	)		(4,435,000	)
Proceeds of FHLB advances		5,577,871			6,321,940
Repayments of FHLB advances		(5,568,665	)		(6,319,630	)
Dividends paid		(1,686	)		(1,507	)
Issuance of common stock and exercise of employee stock options		435			375
Excess tax benefits from share-based payment arrangements		55			79
Net cash (used for) provided by financing activities		(5,633	)		58,149

Increase in cash and cash equivalents		17,514			1,251
Cash and cash equivalents at beginning of period		376,759			321,749
Cash and cash equivalents at end of period	$	394,273		$	323,000

Supplemental Disclosure of Cash Flow Information:
Cash paid for interest during the period	$	6,920		$	9,278
Cash paid for income taxes, net		214			1,008
Loans transferred to assets acquired through foreclosure		3,641			3,616
Net change in other comprehensive income		(170	)		5,129

The accompanying notes are an integral part of these consolidated Financial Statements.

WSFS FINANCIAL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(UNAUDITED)

1. BASIS OF PRESENTATION

Our Consolidated Financial Statements include the accounts of WSFS Financial Corporation (“the Company”, “our Company”, “we”, “our” or “us”), Wilmington Savings Fund Society, FSB (“WSFS Bank” or the “Bank”) and Montchanin Capital Management, Inc. (“Montchanin”) and its wholly owned subsidiary, Cypress Capital Management, LLC (“Cypress”). We also have three unconsolidated affiliates, WSFS Capital Trust III, WSFS Capital Trust IV, and WSFS Capital Trust V (“the Trusts”). WSFS Bank has two fully-owned subsidiaries, WSFS Investment Group, Inc. (“WIG”) and Monarch Entity Services LLC (“Monarch”). WIG markets various third-party insurance and securities products to Bank customers through the Bank’s retail banking system. Monarch provides commercial domicile services which include employees, directors, sublease of office facilities and registered agent services in Delaware and Nevada. Founded in 1832, the Bank is one of the ten oldest banks continuously operating under the same name in the United States.

We provide residential and commercial real estate, commercial and consumer lending services, as well as retail deposit and cash management services. In addition, we offer a variety of wealth management and trust services through our Christiana Trust division. Lending activities are funded primarily with customer deposits and borrowings. The Federal Deposit Insurance Corporation (“FDIC”) insures our customers’ deposits to their legal maximums. We serve our customers primarily from our 44 offices located in Delaware (37), Pennsylvania (5), Virginia (1) and Nevada (1) and through our website at www.wsfsbank.com.

Although our current estimates contemplate current economic conditions and how we expect them to change in the future, for the remainder of 2011, it is reasonably possible that actual conditions may be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Amounts subject to significant estimates are items such as the allowance for loan losses and lending related commitments, goodwill, intangible assets, post-retirement obligations, the fair value of financial instruments and other-than-temporary impairments. Among other effects, such changes could result in future impairments of investment securities, goodwill and intangible assets and increases of allowances for loan losses and lending related commitments as well as increased post-retirement expense.

Our accounting and reporting policies conform with U.S. generally accepted accounting principles and prevailing practices within the banking industry for interim financial information and Rule 10-01 of the Securities and Exchange Commission (“SEC”) Regulation S-X. Rule 10-01 of Regulation S-X does not require us to include all information and notes for complete financial statements and prevailing practices within the banking industry. Operating results for the three month period ended March 31, 2011 are not necessarily indicative of the results that may be expected for any future quarters or for the year ending December 31, 2011. For further information, refer to the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the SEC.

Accounting for Stock-Based Compensation

Stock-based compensation is accounted for in accordance with FASB ASC 718, Stock Compensation (formerly SFAS No. 123R, Share-Based Payment). After shareholder approval in 2005, the 1997 Stock Option Plan (“1997 Plan”) was replaced by the 2005 Incentive Plan (“2005 Plan”). No future awards may be granted under the 1997 Plan, however, we still have options outstanding under the 1997 plan for officers, directors and Associates of the Company and its subsidiaries. The 2005 Plan will terminate on the tenth anniversary of its effective date, after which no awards may be granted. We have stock options outstanding under both plans (collectively, “Stock Incentive Plans”). As of March 31, 2011, the number of shares reserved for issuance under the 2005 Plan is 1,197,000.

The Stock Incentive Plans provide for the granting of incentive stock options as defined in Section 422 of the Internal Revenue Code as well as non-incentive stock options (collectively, “stock options”). Additionally, the 2005 Plan provides for the granting of stock appreciation rights, performance awards, restricted stock and restricted stock

unit awards, deferred stock units, dividend equivalents, other stock-based awards and cash awards. All Stock Options are to be granted at not less than the market price of our common stock on the date of the grant. All Stock Options granted during 2011 vest in 25% per annum increments, start to become exercisable one year from the grant date and expire five years from the grant date. Generally, all awards become immediately exercisable in the event of a change in control, as defined within the Stock Incentive Plans. In addition, the Black-Scholes option-pricing model is used to determine the grant date fair value of stock options. At March 31, 2011, we had 230,540 remaining shares available for issuance under the 2005 Plan.

Stock Options

The following table provides information about our stock options outstanding for the three months ended March 31, 2011:

	March 31, 2011
				Weighted-
				Average
	Shares			Exercise Price
Stock Options:
Outstanding at beginning of period		566,323		$	42.84
Granted		50,723			44.91
Exercised		(7,161	)		22.34
Forfeited		(14,348	)		46.13
Outstanding at end of period		595,537			43.18

Exercisable at end of period		454,294		$	44.28

Weighted-average fair value
of awards granted	$	14.29

The following table provides information about our unvested stock options outstanding for the three months ended March 31, 2011:

	March 31, 2011
				Weighted-
				Average
	Shares			Exercise Price
Stock Options:
Unvested at beginning of period		123,486			$	45.04
Granted		50,723				44.91
Vested		(24,977	)			26.96
Forfeited		(7,989	)			39.70
Unvested at end of period		141,243			$	39.66

The total amount of compensation cost to be recognized relating to non-vested stock options as of March 31, 2011 was $941,000. The weighted-average period over which they are expected to be recognized is 2.6 years. We issue new shares upon the exercise of options.

Restricted Stock

We issued 39,383 restricted stock units and awards during the first quarter of 2011. These awards generally vest over a four year period. For these stock awards made to certain executive officers, there are additional vesting limitations under the Emergency Economic Stabilization Act of 2008 (“EESA”).

Performance Stock Awards

The Board approved a plan in which Marvin N. Schoenhals, Chairman of the Board, was granted 22,250 shares of restricted stock effective January 3, 2011 with a five-year performance vesting schedule starting at the end of the second year. These awards are based on acquiring new business relationships in which Mr. Schoenhals has played a meaningful role in helping us establish the new business. These shares are subject to vesting in whole or in part if pre-tax contributions achieved over a two year period result in at least a 50% return on investment of the cost of the restricted stock.

For the three months ended March 31, 2011, the effect of stock-based compensation, including stock options, restricted stock, and performance stock, on salaries, benefits and other compensation was $525,000 pre-tax ($437,000 after tax) or $0.05 per share.

2. EARNINGS PER SHARE

The following table shows the computation of basic and diluted earnings per share:

	For the three months ended
		March 31,
	2011		2010
	(In Thousands, Except Per Share Data)
Numerator:
Net income (loss) allocable to common stockholders	$	3,514	$	(178	)

Denominator:
Denominator for basic earnings per share - weighted average shares		8,576		7,084
Effect of dilutive employee stock options and warrants		154		-
Denominator for diluted earnings per share – adjusted weighted		8,730		7,084
average shares and assumed exercise		8,730		7,084

Earnings per share:
Basic:
Net income (loss) allocable to common shareholders	$	0.41	$	(0.03	)
Diluted:
Net income (loss) allocable to common shareholders	$	0.40	$	(0.03	)

Outstanding common stock equivalents having no dilutive effect		304		795

For the three months ended March 31, 2010, all stock options were excluded from the computation of diluted net loss per common share because the effect would have been antidilutive.

3. INVESTMENT SECURITIES

The following tables detail the amortized cost and the estimated fair value of our investment securities held-to-maturity and securities available-for-sale (which includes reverse mortgages):

				Gross		Gross
	Amortized			Unrealized		Unrealized			Fair
	Cost			Gains		Losses			Value
	(In Thousands)
Available-for-sale securities:

March 31, 2011:
Reverse mortgages	$	(685	)	$	—	$	—		$	(685	)
U.S. Government and government		36,657			220		(169	)		36,708
sponsored enterprises ("GSE")
State and political subdivisions		2,329			29		(3	)		2,355
	$	38,301		$	249	$	(172	)	$	38,378
December 31, 2010:
Reverse mortgages	$	(686	)	$	—	$	—		$	(686	)
U.S. Government and GSE		49,691			441		(129	)		50,003
State and political subdivisions		2,879			38		(2	)		2,915
	$	51,884		$	479	$	(131	)	$	52,232
Held-to-maturity:

March 31, 2011:
State and political subdivisions	$	216		$	—	$	(22	)	$	194

December 31, 2010:
State and political subdivisions	$	219		$	—	$	(23	)	$	196

Securities with book values aggregating $33.6 million at March 31, 2011 were specifically pledged as collateral for the Bank’s Treasury Tax and Loan account with the Federal Reserve Bank, securities sold under agreement to repurchase, and certain letters of credit and municipal deposits which require collateral.

The scheduled maturities of investment securities held-to-maturity and securities available-for-sale at March 31, 2011 and December 31, 2010 were as follows:

	Held-to-Maturity						Available-for Sale
	Amortized			Fair			Amortized			Fair
	Cost			Value			Cost			Value
	(In Thousands)
March 31, 2011
Within one year (1)		$	—		$	—		$	13,498		$	13,652
After one year but within five years			—			—			24,474			24,399
After five years but within ten years			—			—			—			—
After ten years			216			194			329			327
		$	216		$	194		$	38,301		$	38,378
December 31, 2010
Within one year (1)		$	—		$	—		$	10,549		$	10,617
After one year but within five years			—			—			41,006			41,286
After five years but within ten years			—			—			—			—
After ten years			219			196			329			329
		$	219		$	196		$	51,884		$	52,232
(1) Reverse mortgages do not have contractual maturities. We have included reverse mortgages in maturities within one year.

We sold $6.1 million of investment securities classified as available-for-sale during the first quarter of 2011 resulting in a gain on sale of $110,000. There were no sales of investment securities classified as available-for-sale during the first quarter of 2010 and, as a result, there were no net gains or losses realized during the first quarter of 2010. The cost basis for investment security sales was based on the specific identification method. Investment securities totaling $330,000 and $720,000 were called by their issuers during the first quarter of 2011 and 2010, respectively.

At March 31, 2011, we owned investment securities totaling $17.0 million where the amortized cost basis exceeded the fair value. Total unrealized losses on those securities were $194,000 at March 31, 2011. This temporary impairment is the result of changes in market interest rates subsequent to the purchase of the securities. Securities with fair values of $98,000 have been impaired for 12 months or longer. We have determined that these securities were not other than temporarily impaired as of March 31, 2011 or December 31, 2010. Our investment portfolio is reviewed each quarter for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the cost, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer and the intent and ability not to sell the investment for a period of time sufficient to allow for any anticipated recovery in the market. We evaluate our intent and ability to hold debt securities based upon our investment strategy for the particular type of security and our cash flow needs, liquidity position, capital adequacy and interest rate risk position. In addition, we do not have the intent to sell, nor is it more likely-than-not we will be required to sell these securities before we are able to recover the amortized cost basis.

The table below shows our investment securities’ gross unrealized losses, fair value by investment category and length of time individual securities have been in a continuous unrealized loss position at March 31, 2011.

	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loss
	(In Thousands)
Held-to-maturity
State and political subdivisions	$	—	$	—	$	98	$	22	$	98	$	22

Available-for-sale
State and political subdivisions		471		3		—		—		471		3
U.S Government and GSE		16,463		169		—		—		16,463		169

Total temporarily impaired investments	$	16,934	$	172	$	98	$	22	$	17,032	$	194

The table below shows our investment securities’ gross unrealized losses, fair value by investment category and length of time that individual securities were in a continuous unrealized loss position at December 31, 2010.

	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loss
	(In Thousands)
Held-to-maturity
State and political subdivisions	$	—	$	—	$	102	$	23	$	102	$	23

Available-for-sale
State and political subdivisions		502		2		—		—		502		2
U.S Government and GSE		12,994		129		—		—		12,994		129

Total temporarily impaired investments	$	13,496	$	131	$	102	$	23	$	13,598	$	154

4. MORTGAGE-BACKED SECURITIES

The following tables detail the amortized cost and the estimated fair value of our mortgage-backed securities:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In Thousands)
Available-for-sale securities:

March 31, 2011:
Collateralized mortgage obligations (“CMO”) (1)	$	423,923	$	9,872	$	(751	)	$	433,044
Federal National Mortgage Association (“FNMA”)		130,968		1,129		(650	)		131,447
Federal Home Loan Mortgage Corporation (“FHLMC”)		54,683		786		(270	)		55,199
Government National Mortgage Association (“GNMA”)		63,112		1,360		(543	)		63,929
	$	672,686	$	13,147	$	(2,214	)	$	683,619
December 31, 2010:
CMO (1)	$	490,946	$	9,687	$	(599	)	$	500,034
FNMA		89,226		1,253		(431	)		90,048
FHLMC		43,970		743		(273	)		44,440
GNMA		65,849		1,229		(674	)		66,404
	$	689,991	$	12,912	$	(1,977	)	$	700,926

Trading securities:

March 31, 2011:
CMO	$	12,432	$	—	$	—		$	12,432

December 31, 2010:
CMO	$	12,432	$	—	$	—		$	12,432

(1) Includes GSE CMO’s classified as available-for-sale.

The portfolio of available-for-sale mortgage-backed securities is comprised of 177 bonds with an amortized cost of $672.7 million of both GSE ($359.3 million) and non-GSE ($313.4 million) bonds. All bonds were AAA-rated at time of purchase; only one bond with a value of $112,432 is now rated below AAA. Downgraded bonds were re-evaluated at March 31, 2011. The result of this evaluation shows no other-than-temporary impairment for the three months ended March 31, 2011. The weighted average duration of the mortgage-backed securities was 2.5 years at March 31, 2011.

At March 31, 2011, mortgage-backed securities with market values aggregating $353.5 million were pledged as collateral for retail customer repurchase agreements and municipal deposits. From time to time, mortgage-backed securities are also pledged as collateral for Federal Home Loan Bank (FHLB) borrowings and other obligations. The fair value of these FHLB pledged mortgage-backed securities was $51.3 million at March 31, 2011.

During the first three months of 2011, we sold mortgage-backed securities available-for-sale of $40.0 million with net gains of $305,000. The cost basis of all mortgage-backed securities sales is based on the specific identification method. There were no sales of mortgage-backed securities available for sale during the first three months of 2010.

Mortgage-backed securities have expected maturities that differ from their contractual maturities. These differences arise because borrowers may have the right to call or prepay obligations with or without a prepayment penalty.

At March 31, 2011, we owned mortgage-backed securities totaling $223.4 million where the amortized cost basis exceeded fair value. Total unrealized losses on these securities were $2.2 million at March 31, 2011. This temporary impairment is the result of changes in market interest rates and a lack of liquidity in the mortgage-backed securities market. There were no securities impaired for 12 months or longer. We have determined that these securities were not other-than-temporarily impaired at March 31, 2011 or December 31, 2010. Quarterly, we evaluate the current characteristics of each of our mortgage-backed securities such as delinquency and foreclosure levels, credit enhancement, projected losses and coverage. In addition, we do not have the intent to sell, or is it more likely-than-not we will be required to sell these securities before we are able to recover the amortized cost basis.

The table below shows our mortgage-backed securities’ gross unrealized losses, fair value by investment category and length of time that individual securities have been in continuous unrealized loss position at March 31, 2011.

	Less than 12 months						12 months or longer						Total
	Fair			Unrealized			Fair			Unrealized			Fair			Unrealized
	Value			Loss			Value			Loss			Value			Loss
	(In Thousands)
Available-for-sale
CMO		$	96,130		$	751		$	—		$	—		$	96,130		$	751
FNMA			80,150			650			—			—			80,150			650
FHLMC			23,785			270			—			—			23,785			270
GNMA			23,353			543			—			—			23,353			543

Total temporarily impaired MBS		$	223,418		$	2,214		$	—			—		$	223,418		$	2,214

The table below shows our mortgage-backed securities’ gross unrealized losses, fair value by investment category and length of time that individual securities were in a continuous unrealized loss position at December 31, 2010.

	Less than 12 months						12 months or longer						Total
	Fair			Unrealized			Fair			Unrealized			Fair			Unrealized
	Value			Loss			Value			Loss			Value			Loss
	(In Thousands)
Available-for-sale
CMO		$	58,821		$	534		$	1,171		$	65		$	59,992		$	599
FNMA			45,129			431			—			—			45,129			431
FHLMC			14,981			273			—			—			14,981			273
GNMA			23,831			674			—			—			23,831			674

Total temporarily impaired MBS		$	142,762		$	1,912		$	1,171		$	65		$	143,933		$	1,977

We own $12.4 million par value of SASCO RM-1 2002 securities which are classified as trading, of which, $1.4 million is accrued interest paid in kind. We expect to recover all principal and interest due to seasoning and excess collateral. Based on FASB ASC 320, Investments – Debt and Equity Securities (“ASC 320”) (Formerly SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities) when these securities were acquired they were classified as trading because it was our intent to sell them in the near term. We used the guidance under ASC 320 to provide a reasonable estimate of fair value in 2011 and 2010. We estimated the value of these securities based on the pricing of BBB+ securities that have an active market through a technique which estimates the fair value of this asset using the income approach as of March 31, 2011.

5. ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY INFORMATION

Allowance for Loan Losses

We maintain allowances for loan losses and charge losses to these allowances when such losses are realized. The determination of the allowance for loan losses requires significant judgment reflecting our best estimate of impairment related to specifically identified loans as well as probable loan losses in the remaining loan portfolio. Our evaluation is based upon a continuing review of these portfolios.

The following table provides the activity of the allowance for loan losses and loan balances for the three months ended March 31, 2011:

				Commercial
	Commercial			Mortgages			Construction			Residential			Consumer			Total
Allowance for loan losses	(In thousands)

Beginning balance	$	26,480		$	10,564		$	10,019		$	4,028		$	9,248		$	60,339
Charge-offs		(3,365	)		(247	)		(5,226	)		(406	)		(1,756	)		(11,000	)
Recoveries		127			8			391			85			142			753
Provision		1,294			1,541			1,474			56			1,543			5,908
Ending balance	$	24,536		$	11,866		$	6,658		$	3,763		$	9,177		$	56,000

Period-end allowance allocated to:
Specific reserves(1)	$	4,169		$	3,297		$	1,393		$	778		$	121		$	9,758
General reserves(2)		20,367			8,569			5,265			2,985			9,056			46,242
Ending balance	$	24,536		$	11,866		$	6,658		$	3,763		$	9,177		$	56,000

Period-end loan balances evaluated for:
Specific reserves(1)	$	23,252		$	15,032		$	30,942		$	18,501		$	5,548		$	93,275	(3)
General reserves(2)		1,263,725			607,209			98,090			284,944			298,828			2,552,796
Ending balance	$	1,286,977		$	622,241		$	129,032		$	303,445		$	304,376		$	2,646,071

(1) Specific reserves represent loans individually evaluated for impairment

(2) General reserves represent loans collectively evaluated for impairment

(3) The difference between this amount and nonaccruing loans at March 31, 2011, represents accruing troubled debt restructured loans of $7.6 million.

Non-Accrual and Past Due Loans

The following tables show our nonaccrual and past due loans at the dates indicated:

																			Greater
	30–59			60–89			Greater			Total									than 90
March 31, 2011	Days			Days			than			Past						Total			Days and			Nonaccrual
(In Thousands)	Past Due			Past Due			90 Days			Due (1)			Current			Loans			Accruing			Loans

Commercial	$	9,532		$	2,386		$	10,230		$	22,148		$	1,264,829		$	1,286,977		$	424		$	23,300
Commercial mortgages		5,415			5,765			2,348			13,528			608,713			622,241			-			15,229
Construction		906			6,064			11,361			18,331			110,701			129,032			-			30,942
Residential		5,631			2,960			9,286			17,877			285,568			303,445			576			12,250
Consumer		1,353			770			939			3,062			301,314			304,376			-			4,153

Total	$	22,837		$	17,945		$	34,164		$	74,946		$	2,571,125		$	2,646,071		$	1,000		$	85,874
% of Total Loans		0.86	%		0.68	%		1.29	%		2.83	%		97.17	%		100	%		0.04	%		3.25	%

																			Greater
	30–59			60–89			Greater			Total									than 90
December 31, 2010	Days			Days			than			Past						Total			Days and			Nonaccrual
(In Thousands)	Past Due			Past Due			90 Days			Due (1)			Current			Loans			Accruing			Loans
Commercial	$	3,004		$	692		$	8,755		$	12,451		$	1,225,595		$	1,238,046		$	-		$	21,577
Commercial mortgages		6,574			-			2,056			8,630			613,368			621,998			-			9,490
Construction		1,685			3,980			14,238			19,903			120,756			140,659			-			30,260
Residential		6,913			2,024			9,658			18,595			291,900			310,495			465			11,739
Consumer		1,355			261			1,756			3,372			307,137			310,509			-			3,701

Total	$	19,531		$

WSFS FINANCIAL CORP - FORM 10-Q - May 10, 2011

Attached files